Blogs Archives - Page 3 of 6 - Lindeman Reports

Posted on July 10, 2022July 15, 2022 by John Lindeman

Be cautious with the COVID Census

The last Census was conducted in August 2021, when our international borders had been closed for over eighteen months, State borders were firmly shut and the southern capital cities were in lockdown.

Much of the data illustrates the abnormalities that these restrictions on movement caused, but the stats also reveal how some people simply avoided them altogether by secretly slipping away to safety.

There have only been a few times when Australian’s have felt sufficiently threatened to make a run for safety, such as during the Second World War. Many Sydney homeowners feared invasion, and some fled over the mountains, returning when the danger was over. The new Census data has revealed that some people did the same thing during the pandemic.

There was a secret slip away to safety

People who were lucky enough to have holiday homes located away from the lockdowns, restrictions on movement and the COVID-19 threat itself were able to quietly relocate to the safety of their holiday homes until the danger had dissipated.

One of the most public of these slip aways was that of former NSW Arts Minister Don Harwin, who was fined $1,000 by police and resigned his portfolio when he was discovered living at his Pearl Beach holiday home in an apparent breach of the coronavirus public health orders.

Holiday homes were used as bolt holes

There are around one million holiday homes around Australia, mostly only occupied during peak holiday seasons, but the last Census, which was conducted in August when Sydney, Melbourne and Canberra were in lockdown, shows that many of these were temporarily occupied during the pandemic as bolt holes.

With Melbourne being the most locked down city in the world during the crisis, it’s not surprising that the percentage of empty holiday homes in regional Victoria fell dramatically when the 2016 Census figures are compared to last year’s “pandemic” Census. In other words, the number of holiday homes that were occupied during the Census actually rose, even though they would not normally have been occupied in August, when the Census is conducted.

This slip away to safety also occurred in New South Wales with Sydney in lockdown during the 2021 Census. The figures show that the percentage of holiday homes that were occupied during the lockdowns rose when compared to the previous Census.

Empty holiday home numbers actually rose in no lockdown states

This flight to safety did not occur in States where there were no lockdowns in force at the time of the 2021 Census, as the data from some of the most popular holiday home locations in Queensland, Western Australia and Tasmania clearly shows.

It seems that many people in Sydney, Melbourne and Canberra slipped away not just to avoid catching the virus, but to get away from lockdowns, while there was no such motivation in Brisbane, Adelaide or Perth, where no lockdowns were in place.

Much of the 2021 Census data was skewed by the pandemic

The slip away to safety highlights the fact that last year’s Census was conducted at a very unusual time in our history. Much of the data collected was not typical, with closed international and State borders, restrictions on movement and lockdowns in place during the Census in many areas.

For example, rental demand in the Melbourne CBD collapsed during the pandemic because of closed borders and lockdowns. The number of unoccupied units trebled from 2016 to 2021 with nearly one third of inner Melbourne apartments being empty during the 2021 Census.

It’s a similar story in student precincts, where the number of students dropped dramatically as they returned home. Kelvin Grove is an inner suburb of Brisbane with several tertiary institutions and a teaching hospital. The number of student group households fell by 25% during the pandemic.

Tourism came to a sudden end in popular holiday locations and the number of workers in tourist related industries such as accommodation, hospitality, restaurants and specialist retail fell. As most of these are usually students and backpackers, rental demand collapsed as well.

While the 2021 Census data will still be extremely useful, this is one Census where the information will need careful checking to see if the data may have been skewed by the impact of restrictions on movement, lockdowns, interstate travel, social distancing and international border closures that were in place at the time. And of course, the stats show us that not all people obeyed the health regulations and simply fled to the safety of their holiday homes until the lockdowns were over.

Posted on June 14, 2022June 14, 2022 by John Lindeman

Tips and traps of buying overseas

Tips and Traps of buying overseas

As price growth in our housing market slows down and some areas are experiencing price falls, many investors are once again turning their attention to buying overseas.

John Lindeman reports that you can’t buy a property in some countries unless you are a citizen, while buying property in others can earn you a residency permit.

You can even buy a villa or even an entire estate in some parts of Italy for €1. Yes, that’s right, just one euro. So, what’s the catch?

Many houses in Italy’s most picturesque locations have fallen into decay as their owners pass away and younger people move away.

To combat the issue, authorities in regions such as Sicily, Sardinia and Tuscany are offering these once grand villas and even whole estates at buy prices of only €1.

The only condition is that buyers must renovate their properties. The aim is to restore towns with medieval, Saracen or even Roman heritage buildings that have fallen into disrepair and boost local economies by encouraging more tourists to visit.

Buy a property in Spain and receive an honorary residency permit

Some countries enthusiastically welcome overseas property buyers, with Spain and Portugal even offering residency permit enticements to foreigners who buy a property worth over €500,000.

This is because housing demand in many European and Asian countries is flat as their populations decline. Not only are fewer babies being born, but young people are also emigrating.

You can’t buy a property in Switzerland unless you are a citizen

The opposite applies in Switzerland, where the government is charged with discouraging foreign immigration and restricts property ownership to those people who are citizens. But before you jump into foreign home ownership, it is also important for you to know the tax and legal systems that apply, as they could be very different from ours.

Beware of wealth, property, value added and inheritance taxes

For example, if you rent out the property during your absence, both the local country and Australia may tax your income from rent, unless Australia has an arrangement with the other country which takes the tax you have paid overseas on rental income into account.

Most countries have a capital gains tax, plus an ongoing property tax similar to our state-based land taxes, but some also have property related taxes that do not exist in Australia.

These include value added tax, which is applied to improvements made by the owner, wealth tax applied to properties worth more than certain amounts and inheritance tax which kicks in when the property passes to beneficiaries.

In some countries, inheritance tax is low or non-existent when properties are left to spouses or children, but become onerous when estates are left to others, or if immediate family are bypassed in a will.

And on the subject of inheritance, it is worth noting that some countries oblige you to leave your property to your next of kin in accordance with the established practice of the country.

This means that your lover or mistress, if you have one in France, is entitled to a share of your French estate when you pass away. This could be quite a shock to the family back home!

Posted on April 12, 2022April 12, 2022 by John Lindeman

The mindset of successful investors

Over the last fifteen years I have answered hundreds of questions from property investors at live training events, workshops and bootcamps, but never so many and none so urgent as when markets begin to stagnate, and the future seems uncertain.

Here are the four most pressing questions I’ve received at such times and my answers, which may help you to achieve your own mindset for investment success.

How important is timing my purchase vs time in market?

Baron Rothschild once famously said, Buy when there’s blood in the streets. What he meant is that the best time to buy is when everyone else is trying to sell.

The issue with this is that we don’t know that the bottom has been reached until growth has returned, so buying at the apparent bottom could only mean further falls are coming.

To this famous quote I would add: Buy when there’s blood in the streets, but not if it’s yours.

In other words, it’s never a good time to take risks with your investments, especially with property which is easily the biggest investment most of us will ever make. The best time to buy is when we are confident that good growth is about to return, or has already started.

How can I take a long term perspective, when the news is becoming negative?

Over the last decade, our news sources have changed dramatically. We now rely on digitally delivered media for the news that we traditionally obtained from magazines, periodicals and daily newspapers.

As a direct result, the use by or expiry date of news stories has shrunk from weeks to hours and even less with grabs and headlines only catching our eye for seconds.

Our news sources focus on immediate and imminent issues, on breaking news rather than in depth analysis. Don’t expect such news sources to deliver any insights into property investment, but rely on proven and trusted providers of property market information to give you their long term perspectives.

How long should I hold a property to see great results?

There is no one answer to this question, because every suburb and each property is different, offering a mix of risk, volatility, cash flow and growth potential. The period of time you need to hold also depends on your desired outcomes, which could be quick market driven growth for a renovation or small development, consistent cash flow and growth for a SMSF investment, or long term buy and hold security.

In general, the areas and types of property which offer speedy price growth also carry the greatest risk of price falls, because they tend to have large numbers of renters and investors.

Renters don’t own the properties they live in, so they tend to move often, while investors don’t live in the properties they own, so they can buy or sell more easily when conditions change.

So, rather than being a matter of time, it’s a matter of choosing the areas and types of property which have the best potential to deliver the results you want.

How can I get over the disease of analysis paralysis?

It’s no wonder that investors often end up confused, with so much information and so many contradictory forecasts to choose from.

Over the years I have seen an incredible array of property related stats, housing data and economic information being used by different theorists and strategists at various times to make their housing market predictions.

They have relied on finance data, population trends, unemployment stats, housing approvals, affordability, stock on market, vendor discounting, time on market, auction clearance rates, rental yields, gentrification, property clocks, past performance, market cycles, market tightness, on-line search trends, prices, sales, listings and many more to generate their forecasts.

The only thing missing from this list is probably the study of tea leaves, or maybe tarot card readings. The point is that there is not just so much data available, there is too much data.

The easiest way to get over analysis paralysis is to rely only on information provided by recognised analysts or experts with proven published records of past success, and who use statistical methodologies which have stood the test of time and delivered a consistently high rate of accuracy.

Posted on March 12, 2022March 14, 2022 by John Lindeman

Why property prices will keep rising

Some bank economists are predicting that house prices will fall this year or in 2023 as interest rates increase, but property market analyst John Lindeman explains why property prices will continue to rise.

Economists are concerned that the Reserve Bank will soon raise interest rates to slow down inflation, because inflation is very hard to reign in once it takes hold. They believe that higher interest rates will make housing less affordable, and that lower buyer demand will then push prices down.

It seems to make sense that higher borrowing costs will reduce buyer demand and therefore prices will fall. But, it’s hard to test this theory, because interest rates have gradually declined since 1990 when the standard variable home loan rate was an eye watering 13.5%.

For over 30 years property prices have grown and interest rates have fallen

The graph tracks this gradual fall in loan rates since 1990 and shows that it has been accompanied by a steady rise in Australian median house prices over the same time.

There certainly is a strong correlation between falling interest rates and rising property prices, but does this mean that the reverse is also true? How can we be sure that if interest rates rise, property prices will fall?

In the last 30 years property prices did not fall when interest rates rose

The major banks have lifted their standard variable home loan rates several times since 1990 and the last rises in the official cash rate ended over a decade ago in 2011. This graph shows you the change in the Australian median house price that took place after each group of rate rises occurred.

As the graph shows, house prices did not fall as a result of interest rate rises. It is possible, of course that property prices might have increased more quickly if interest rates hadn’t gone up when they did, but the point is that they did not fall. The simple reason for this apparent contradiction is that most of our property owners are immune from or resilient to the impact of interest rate rises.

Most of our property owners are immune from interest rate hikes

One third of our housing is fully owned, with mortgages having been paid off and there’s no remaining debt.

The owners are mostly older couples living in empty nests and when they sell, it will be to downsize. This means that interest rate rises are of no concern to them.

Another third of our housing stock is owned by investors who can claim the cost of housing finance interest against all their other income. This means that interest rate rises reduce the amount of income tax they pay. In addition, they can also raise asking rents on their properties to recoup the cost of any interest rate rises.

Only one third of our residential properties have mortgages which are being paid off by owner-occupiers. Most of them, however, purchased their homes many years ago when rates were much higher than they are now. Their financial situations have improved since then and they have probably paid down some of their debt, so a rise in interest rates is quite manageable and does not motivate or force them to sell their homes.

Only first home buyers are badly impacted when interest rates rise

Higher interest rates impact the purchasing power of potential first home buyers more than other property buyers because they need to borrow most of the purchase price. This graph shows how the number of first home buyer housing finance loans fell in 2012 after the last succession of interest rate rises took place.

Some highly leveraged recent first time buyers in new outer suburban first home buyer areas may experience mortgage stress when interest rates go up. If enough of them are forced to sell for personal, family, financial or employment reasons and the number of potential first home buyers also falls, there is a risk that property values in first home buyer locations may fall.

First home buyers only comprise around one tenth of all home owners, and despite the personal and social impact of such events when they have occurred in the past, local markets have always bounced back into growth within a few months. Yet there have been several times in the past when our housing market as a whole has fallen in value and this suggests that there must be another cause.

Housing prices fall when the amount of housing finance is restricted

This graph shows annual Australian capital city house price changes from 1901 to the present. The red arrows indicate years when house prices went negative, and property owners experienced a fall in the value of their dwellings.

The only times when housing prices went backwards were during the First World War, the Great Depression, the Sixties Credit Squeeze, the Recession “We had to have”, the Global Financial Crisis and most recently, as a result of APRA restrictions on the amount of housing finance that investors could obtain from the banks.

Each of these events was a recessionary crisis which severely cut the amount of housing finance that was available to property buyers. Unlike interest rate rises, which may impact only around ten percent of property owners, a lack of housing finance affects all potential first home buyers, upgraders and investors, who together make up two thirds of our housing market.

This is why house prices don’t fall when interest rates rise, but when there’s not enough housing finance available to potential buyers.

The aim of interest rate rises is to curb inflation, not hit housing prices

Interest rate hikes are a broad brush tool which the Reserve Bank uses to slow down inflation. The graph shows past groups of rate rises and how this tactic has worked in the past. It’s the reason why interest rates will increase again if the rate of inflation grows.

Because rising interest rates only impact a small percentage of home owners, we should look at the reason that they are increased, which is to slow down the rate of inflation. Is there a link between rising inflation and housing prices?

Housing prices have always moved in sync with the rate of inflation

This graph shows the relationship between capital city house prices and inflation from 1901 to the present time and demonstrates that housing price movements and inflation have always been in sync with each other.

In fact, as the graph also shows, housing prices have historically tended to move more vigorously than inflation rates but always in the same direction.

In addition, the graph demonstrates that during periods of rapidly rising inflation such as the post-war years and the seventies hyperinflation years, housing prices experienced their most dramatic price growth in our history.

In summary, it is clear that interest rate rises only impact a small percentage of property owners, while property prices on the whole rise whenever the rate of inflation increases. If inflation goes up this year or next, so will property prices.

Sources

Basic Community Profiles 2016 Australian Housing Tenure, Australian Bureau of Statistics
Lending Indicators (First Home Buyers), January 2022 Australian Bureau of Statistics
House Price Indexes: Eight Capital Cities, 6416.0 Australian Bureau of Statistics
Housing Finance Australia 5609.0, Australian Bureau of Statistics
CoreLogic Home Property Value Index, CoreLogic published Monthly Indices
Cash rates and standard variable home loan rates, Reserve Bank of Australia Statistics
Inflation from A Series, B Series, C Series, D Series, IRPI and CPI data obtained via Data on Request, Australian Bureau of Statistics

Posted on March 12, 2022March 12, 2022 by John Lindeman

Why houses and units perform differently

Many forecasters lump all types of properties and all areas and localities together, as if they always perform the same, but just as one suburb can perform differently from another, the performance of houses and units can vary significantly, even in the same locality.

We’ve produced some heat maps using our patented Housing Market Prediction Solution to compare the forecast growth potential in Sydney Local Government Areas for houses and units during the rest of 2022.

These two heat maps show you that Sydney units and houses, even in the same council areas, are likely to perform very differently over the next nine months.

The reason for these variations in their predicted performance is that unit and house markets respond to different dynamics.

For example, most units are investor owned which means that their performance is tied to current and future rental demand. As our international borders reopen, we can expect a huge rise in migrant and refugee arrivals, most of whom will settle in areas near employment opportunities and where rents are more affordable. Rising rents will motivate more investors to buy units in these locations and prices will increase.

On the other hand, eighty per cent of houses and townhouses are purchased as homes. Recent price rises and prospective interest rate increases will cut buyer demand in first home buyer locations, but have less effect in upper socio-economic areas, where price growth is likely to continue.

That’s why houses and units can perform differently in the same area at the same time.

Posted on December 20, 2021December 20, 2021 by John Lindeman

Putting your eggs in one basket

If we were completely confident about the performance of our investments, there would be no point in spreading them around to avoid risk. We would simply put all our eggs in one basket, and invest where the results were going to be the best.

The only reason that investors balance their portfolios is because they aren’t confident about the outcomes, and so they diversify to minimise any potential risk. The logic is that if one of their property investments falters, good performance in the others will still give them an acceptable overall result.

However, spreading your investments around by choosing different types of properties, different locations or even buying in different States doesn’t necessarily cut any potential for loss, because all the areas or types of property or types of property you have chosen still be at risk.

Let’s look at some of the most common strategies investors use to minimise their exposure to risk and see which of them makes the most sense.

Spreading properties between capital cities and regional areas

Australia’s regional property markets do occasionally outperform capital cities, but their performance is far more volatile This is because housing demand is often limited to one or two sources, such as mining or tourism, or when large numbers of buyers periodically relocate to regional areas.

This means that if there is strong evidence that a particular regional or rural market is about to boom, it will still be important for you to identify the cause, so that you can “time” the right moment to invest and anticipate when the growth is about to end.

Diversifying in different States

Some investors believe they can minimise their risk by purchasing their properties in several different States or Territories.

However, this can lead to a huge mistake being made if the properties are all located in the same type of market.

For example, you might diversify your portfolio across several States, but if they are all located in towns with a reliance on the same industry such as mining or tourism, then they are all still located in the same type of market, which means that you haven’t really balanced your risk at all.

Buying several different types of properties

Other investors diversify by purchasing different types of properties, such as houses, units, townhouses, duplexes and apartments.

Unfortunately this doesn’t reduce risk, because each of these types of property can perform differently, even in the same suburb.

Always invest in areas with the greatest potential housing demand

Irrespective of where you decide to invest, you need to look at the single most important fact about housing investment. The best investments will always be where the demand for housing is so great that it leads to housing shortages.

Strong rental demand delivers cash flow

Rental markets are far more volatile than owner-occupier markets, because the people who live in the dwellings don’t own them, while the investors who own them don’t live in them.

This volatility provides opportunity as well as risk.

Rental markets can offer you high positive cash flow, but also high risk if the rental demand slows down or the market is over developed with new dwellings being sold to investors.

Strong buyer demand delivers price growth

If you are seeking sustained capital growth without speculative risk, you can choose from first home buyer markets located in urban growth corridors and outer suburbs, upgrader areas situated in well-established upper socio-economic areas and downsizer locations located in attractive retiree destinations.

If you are certain that one type of market is about to boom, it makes sense to concentrate all your properties in that type of market.

The only diversification you might then make would be to minimise State land taxes and the impact of natural catastrophes such as floods, bushfires or cyclones.

This is why it is best to limit the diversification of your portfolio to those types of markets which have the best potential to provide the outcomes from property investment that you are looking for.

Posted on December 8, 2021December 8, 2021 by John Lindeman

Know the best time to buy, hold or sell

by John Lindeman

Every investor needs to know whether it’s the right time to buy, hold or sell their properties. While there are many numbers, statistics and indicators out there ready to help your decision making process, not all of them are accurate or reliable and some are even misleading.

Investors are bombarded by a seemingly endless array of information and advice about when to buy and whether to sell their properties. Because much of this is confusing and even inaccurate, property market expert John Lindeman reveals which stats can help you to make those critical buy, hold or sell decisions.

Published property data is results driven

Most of us rely on published housing data such as sales, sale prices, rents and rental yields when making buy, hold or sell decisions. In fact, many property prediction reports you can buy use these stats to make their forecasts. But, as the image shows, this information is already months old before we get access to it.

The current market could be very different from what the published indicators are showing, because they are based on past results. This is why analysts refer to them as ‘lagging indicators’.

While this information can show you what changes have recently taken place, it can’t tell you what is likely to occur next. For that we need ‘leading indicators’ – the numbers that forecast which way the property market in any suburb is moving.

Leading indicators point the way forward

You can track current market conditions and potential changes for houses or units in any suburb by using real time indicators such as asking prices and the number of properties listed for sale. You can get these from public listing sites and they will show you any emerging trends.

To demonstrate how they work, I have used the analogy of a plane flight where the aeroplane is our property market and the passengers are potential buyers and sellers.

The take off

As the plane prepares to take off, everyone on board is looking forward to their destination, enjoying a rest, catching up on some work during the flight or the in-flight entertainment.

A few optimists might even be looking forward to the in-flight food.

For the property market, this is when anticipation is growing. Buyers and sellers are keen, with both asking prices and listings rising.

Even though prices haven’t increased significantly, investors are confident that they soon will. It could even herald another boom, but it’s too early to be sure.

The inflight safety demonstration

We’re in the air. Uh oh! Thanks for reminding us that things can go wrong. Now we have to assume the crash position, see how to use oxygen masks and check where the emergency exits are.

We are even shown how to don life vests equipped with a light and whistle. It’s not comforting to know that disaster could strike – not comforting at all.

This occurs in the property market when doubts emerge, as buyers and sellers start to pull back, suddenly aware that markets do sometimes crash. Asking prices and listings fall as we brace for the worst, but will it occur, or will we land safely?

The crash

Unfortunately, a few flights do end in disaster, and this also sometimes occurs in property markets when demand collapses.

Everyone tries to sell and no one is buying. In other words, asking prices drop and listings rise dramatically. Property prices then fall, and many investors are ruined.

The safe landing

Luckily, virtually all flights end with a safe and happy landing. The passengers are now excitedly looking forward to their holiday, business meeting, catching up with friends and family, or simply arriving home again.

In the property market, such times herald the start of a real boom.

Asking prices are shooting up and it’s hard to find properties listed for sale because buyers are snapping up properties as soon as they go on the market.

How to time the turning points in any market

Because asking prices indicate the level of vendor confidence, while listings reveal buyer demand, we need to use them together to time those turning points when buyers and sellers are becoming confident or concerned and prices may be about to crash or boom.

Here’s John Lindeman’s guide on how to read any property market and find out what’s around the corner.

Posted on October 21, 2021October 21, 2021 by John Lindeman

Why past performance is no guide to the future

When it comes to partners, horses and football teams, past performance is often used as a guide to predict future performance. Many experts assure us that it’s the same with the property market, but this leads to a huge contradiction in exactly how past performance predicts the future.

Only buy in areas that have experienced good past growth

One group of experts claim that we should only buy properties in suburbs that have “stood the test of time”.

They say that high past performance offers us not only the greatest level of security, but the best prospects of continued price growth into the future. This is based purely on the expectation that such high past performance will continue into the future.

Seems logical, except that there are many suburbs and towns where housing markets have boomed for years, only to crash without warning. In fact, every boom has ended at some time, even if prices haven’t crashed.

The expectation that growth will continue in the future in some suburbs purely because it has in the past ignores the continual changes in population, purchasing power and affordability that occur in our all housing markets. High past performance is a good result for property owners in such areas, but is no guide to their future performance.

Only buy in areas that are overdue for growth

The other group of “past performance” experts use past performance in the opposite way. They rely on the absence of high past performance to pinpoint areas that are “overdue for growth”.

They identify areas where prices have not risen for years and then claim that such markets are due for a catch up to others where growth has occurred.

This ignores the fact that demand may have dropped in such areas, or maybe there have been huge housing developments causing oversupplies. It could be either or even both situations which keep prices subdued. Just because growth hasn’t occurred is no guarantee that this is about to change.

The issue for investors is that while both experts use past performance to justify their predictions, one group looks for areas with high past performance to find potential boom markets, while the other searches for areas with little or no past performance to do exactly the same.

The solution lies between these two extremes

The reason that some suburbs consistently outperform the overall market is because they are in well-established localities where no additional stock can be added. These tend to be the leafy inner or middle-distance suburbs of major capital cities where family homes are held for long periods of time, which results in market tightness and better long term performance.

Yet, even in such above average performing locations, there will still be one or two suburbs whose recent price growth has lagged behind the others, because buyer demand has temporarily fallen below the supply of properties for sale. This means that it will be possible to find a suburb where prices are overdue for growth, and purchase a bargain priced property in an area where prices will still perform well over time.

Posted on October 6, 2021October 21, 2021 by John Lindeman

Property market ponzi schemes

by John Lindeman

The unique feature of Ponzi schemes is that they use money collected from new investors to pay out existing investors. This means that when the number of new investors starts to fall, they can suddenly crash.

But be warned – they exist in our housing markets.

Property booms often start with a genuine rise in demand for housing, but sometimes they can turn into speculative bubbles driven by the expectation of higher prices, rather than being based on a genuine need for accommodation.

When this happens, we have the makings of a property market Ponzi. So who was Ponzi and why do such schemes ultimately crash?

Charles Ponzi started buying US post reply paid coupons in countries where they were cheap such as Italy, and then selling them in the USA where they were worth far more.

Using this simple strategy, he was able to promise investors returns of up to 50% and more, but the actual profits soon proved to be less than anticipated. So, Ponzi started using money from new investors to pay out earlier investors, and to attract more new investors offered even higher returns – up to 100%.

As long as the number of new investors stayed above the number of maturing investments, the scheme kept growing, with huge numbers of people taking part and enormous sums of money being invested.

Soon, however, investigators discovered that his scheme was not based on post reply paid coupons at all, but was a pyramid selling scheme which paid out profits by obtaining more new investors. The scheme quickly collapsed with investors losing almost everything and Ponzi was jailed.

Property booms often start out in the same way that Ponzi’s scheme did, based on genuine demand for housing in which investors can participate. They can also turn into bubbles created by speculative demand from investors in which renters and home buyers no longer take part, and so they turn into Ponzis.

Speculative booms begin like pyramids, with the number of investors buying property much greater than those who want to sell.

The increasing demand pushes prices up and creates more buyer demand, which then pushes prices up further.

The pyramid quickly turns turtle when the number of investors trying to sell starts to exceed the number wanting to buy. This causes prices to fall, and so more investors want to sell.

Prices can then crash when virtually every investor is trying to sell and none want to buy.

This type of crash only occurs in markets controlled by investors because unlike home buyers, they don’t live in the properties they own.

It’s encouraging to know that the stability of the property market comes from the fact that most property buyers are not investors at all, but owner-occupiers who are not seeking cash flow or price growth, but a secure home to live in.

This is why the only areas of our property markets that can experience such Ponzi type crashes are those where investors own most of the properties, and even then a crash can only occur if the demand for properties is purely speculative and not underwritten by a genuine need for housing.

Posted on September 23, 2021September 24, 2021 by John Lindeman

Sinister secrets and celebrity suburbs

John Lindeman reveals whether headline grabbing horror stories about murders or riots steer potential property buyers away from some suburbs, and if the “celebrity effect” really does improve buyer demand in others.

In late 2005, thousands of angry, alcohol fuelled rioters engaged in an orgy of assaults and violence now known as the “Cronulla Riots”.

It was widely considered that these acts of mob violence and property damage would have an immediate impact on the local housing market.

The graph shows that Cronulla’s house prices have usually mirrored those of Sydney as a whole, but what occurred after the riots was totally unexpected.

As the red arrow shows, house prices in Cronulla rose at a higher rate for two years after the riots when compared to the rest of Sydney.

In other words, there was no downward impact on house prices in Cronulla at all, and it’s much the same story in many suburbs which have witnessed bizarre or even horrendous acts.

When a mother murdered eight children in the inner Cairns suburb of Manoora in 2014, local agents believed that property prices would nosedive as a result. However horrific this event was, it had no effect on Manoora house prices when compared to other nearby Cairns suburbs. Manoora became one of Cairns’ best performers in the following years.

Bodies found in barrels

Snowtown is located about 100 km north of Adelaide, and hit the headlines for all the wrong reasons back in the late nineties when eleven dismembered bodies were found in the town’s disused bank vault. The corpses of the butchered victims had been hidden there in barrels by the murderers and so they quickly became known as the “bodies in barrels” murders.

But despite, or possibly even because of the bizarre nature of these murders, the town’s economy boomed as tourists flocked to visit the scene of the grisly crimes.

Even now, tourists stopping at Snowtown are able to purchase a range of bizarre souvenirs when they visit.

The evidence shows that while there may be some lasting stigma attached to the property or the street where a horrendous event previously occurred, this does not extend to the suburb as a whole, and neither buyer nor renter demand is impacted.

Buying for bragging rights

Imagine the excitement of living next door to a well-known celebrity or in the same unit block as a famous actor or sporting legend.

You may even be convinced that housing prices in the vicinity will lift due to the demand that the presence of a famous person could generate, not to mention the “bragging rights”.

While you may be popular at barbecues and parties where you willingly reveal insider stories about your famous neighbours, any effect on housing demand is usually grossly overrated. This is because most celebrities value their privacy, and may even move away when they discover neighbours peering through their windows at night, or secretly inspecting the contents of their rubbish bin.

Adding a layer of attractiveness

Other celebrities may actively promote the desirability of living in their suburb. Rick Stein’s famous restaurant at Bannister’s in Mollymook certainly adds to the appeal of living in this picturesque Southern New South Wales coastal town.

Already indulged with over a dozen restaurants, a spa and championship golf course, locals can enjoy the majestic views of Mollymook beach while dining on Rick Stein’s famous seafood dishes. It’s hardly surprising, then that Mollymook’s house prices are the highest in the Shoalhaven region.

Why do famous people favour such locations? It’s because they are already sought after, especially by the well-heeled. Rather than creating appeal, the presence of famous people simply adds to the existing attractiveness of an area.

In Byron Bay, the “Chris Hemsworth effect” has added an extra layer of desirability to living in this already idyllic location as buyer demand has pushed the median house price to an incredible $2.5 million. Tamborine Mountain on Queensland’s Scenic Rim is home to famous rich listers such as Hugh Jackman, while Mount Macedon in Victoria has played host to former US Secretary of State Colin Powell and celebrities such as Nicolas Cage and Ed Sheeran. Median house prices in both locations are higher than in their nearby capital cities.

Yet, celebrities can only add to an area’s appeal, not create it, so it is always important to look beyond the benefits of living in celebrity suburbs or the supposed impact of those with sinister secrets and do your research to discover the actual causes of buyer demand in any market.